MSRB NOTICE 2003-10 (MARCH 21, 2003)

NOTICE OF PROPOSED ESTABLISHMENT OF OPTIONAL SYSTEM FOR ELECTRONIC SUBMISSION OF FORMS G-37/G-38 AND G-37X

On March 21, 2003, the Municipal Securities Rulemaking Board (the “MSRB”) filed with the Securities and Exchange Commission (the “SEC”) proposed amendments to Rule G-37, on political contributions and prohibitions on municipal securities business, and Rule G-38, on consultants, to establish an optional procedure for electronic submission of Forms G-37/G-38 and G-37x.[1] The MSRB expects that the new electronic submission system, if approved by the SEC, will become operational on the later of June 30, 2003 or 30 days after SEC approval.

Rules G-37 and G-38 require brokers, dealers and municipal securities dealers (“dealers”) to submit to the MSRB on Form G-37/G-38 certain information regarding political contributions to issuer officials, payments to state and local political parties, issuers with which the dealer has engaged in municipal securities business and consultants engaged by the dealer to obtain municipal securities business. In addition, certain dealers that wish to be exempted from the Form G-37/G-38 submission requirement must submit Form G-37x to the MSRB. The new optional submission system will allow dealers to submit Forms G-37/G-38 and G-37x to the MSRB electronically. Dealers will not be required to make submissions electronically and the MSRB will continue to accept submissions made on paper. Dealers that submit Forms G-37/G-38 and G-37x on paper will continue to be required to send two copies of each form to the MSRB by certified or registered mail, or some other equally prompt means that provides a record of sending.[2] Electronic submissions will be made as described below.[3]

Electronic submissions will be made by dealers through a secure, password-protected Internet website. A password will be assigned to a dealer prior to the first use by such dealer of the electronic system in a manner intended to assure authentication of submitters using the system. Each dealer will be required to submit an e-mail address for purposes of receiving electronic records of submissions as well as to provide for follow-up by MSRB staff should any submission prove to be incomplete or incorrect.

Forms G-37/G-38 and G-37x will be submitted electronically by completion of an on-line data entry form, by uploading of an electronic file of a completed form, or a combination of on-line data entry and uploading of files.[4] On-line forms will elicit the same information as paper Forms G-37/G-38 and G-37x and will be in substantially the same format. All uploaded files must be in Adobe Acrobat® portable document format (“PDF”). The MSRB will continue to make all Forms G-37/G-38 and G-37x available to the public for viewing and printing through its website.

The new system will provide a dealer that makes an electronic submission with an electronic record confirming receipt of the submission and providing a control number assigned by the system. This electronic record, together with a PDF copy of the Form G-37/G-38 or G-37x submitted by the dealer made available by the system on-line, is intended to satisfy the requirement under Rule G-8(a)(xvi)(H) that dealers maintain copies of Forms G-37/G-38 and G-37x and records of sending such forms to the MSRB.[5]

The MSRB currently requires that any incomplete or incorrect submission be corrected by the submitter prior to the MSRB accepting the submission as in compliance with Rules G-37 and G-38. Thus, any submission through the electronic system will be subject to such automated and/or manual review as MSRB staff deems appropriate prior to final acceptance. The electronic record of submission sent by the system as described above should not be viewed as a record of acceptance by the MSRB.

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TEXT OF PROPOSED AMENDMENTS[6]

Rule G-37 – Political Contributions and Prohibitions on Municipal Securities Business

(a)-(d) No change.

(e)(i) Except as otherwise provided in paragraph (e)(ii), each broker, dealer or municipal securities dealer shall, by the last day of the month following the end of each calendar quarter (these dates correspond to January 31, April 30, July 31 and October 31) send to the Board by certified or registered mail, or some other equally prompt means that provides a record of sending, two copies of Form G-37/G-38 setting forth, in the prescribed format, the following information:

                (A)-(E) No change.

The Board shall make public a copy of each Form G-37/G-38 received from any broker, dealer or municipal securities dealer.

        (ii)(A) No broker, dealer or municipal securities dealer shall be required to send Form G-37/G-38 to the Board for any calendar quarter in which either:

                    (1) No change.

                    (2) subject to clause (B) of this paragraph (e)(ii), such broker, dealer or municipal securities dealer has not engaged in municipal securities business, but only if such broker, dealer or municipal securities dealer:

                            (a) No change.

                            (b) has sent to the Board, by certified or registered mail or some other equally prompt means that provides a record of sending, two copies of a completed Form G-37x setting forth, in the prescribed format, (i) a certification to the effect that such broker, dealer or municipal securities dealer did not engage in municipal securities business during the eight consecutive calendar quarters immediately preceding the date of such certification, (ii) certain acknowledgments as are set forth in said Form G-37x regarding the obligations of such broker, dealer or municipal securities dealer in connection with Forms G-37/G-38 and G-37x under this paragraph (e)(ii) and rule G-8(a)(xvi), and (iii) such other identifying information required by Form G-37x; provided that, if a broker, dealer or municipal securities dealer has engaged in municipal securities business subsequent to the submission of Form G-37x to the Board, such broker, dealer or municipal securities dealer shall be required to submit a new Form G-37x to the Board in order to again qualify for an exemption under this subclause (A)(2). The Board shall make public a copy of each Form G-37x received from any broker, dealer or municipal securities dealer.

                (B) No change.

        (iii) No change.

        (iv) A broker, dealer or municipal securities dealer that submits Form G-37/G-38 or Form G-37x to the Board shall either:

                (A) send two copies of such form to the Board by certified or registered mail, or some other equally prompt means that provides a record of sending; or

                (B) submit an electronic version of such form to the Board in such format and manner specified in the current Instructions for Form G-37/G-38 and Form G-37x.

(f)-(i) No change.

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Rule G-38 – Consultants

(a)-(d) No change.

(e) Disclosure to Board. Each broker, dealer and municipal securities dealer shall send to the Board, by certified or registered mail, or some other equally prompt means that provides a record of sending, and the Board shall make public, reports of all consultants used by the broker, dealer or municipal securities dealer during each calendar quarter. Such Two copies of the reports must be sent to the Board on Form G-37/G-38 by the last day of the month following the end of each calendar quarter (these dates correspond to January 31, April 30, July 31, and October 31) in the manner provided under Rule G-37. Such reports shall include, for each consultant, in the prescribed format, the consultant’s name pursuant to the Consultant Agreement, business address, role (including the state or geographic area in which the consultant is working on behalf of the broker, dealer or municipal securities dealer), compensation arrangement, any municipal securities business obtained or retained by the consultant with each such business listed separately, and, if applicable, dollar amounts paid to the consultant connected with particular municipal securities business. Such reports shall indicate the total dollar amount of payments made to each consultant during the report period. In addition, such reports shall include the following information to the extent required to be obtained during such calendar quarter pursuant to paragraph (c)(i) of this rule:

        (i)-(ii) No change.

        (iii) if applicable, a statement that the consultant failed to provide any report of information to the broker, dealer or municipal securities dealer concerning reportable political contributions or reportable political party payments.

Once a contribution or payment has been disclosed on a report, the broker, dealer or municipal securities dealer should not continue to disclose that particular contribution or payment on subsequent reports.



[1] File No. SR-MSRB-2003-01. Comments on the proposed amendments should be submitted to the SEC and should reference this file number. The text of the proposed amendments is included at the end of this notice. In addition to amendments needed to effectuate this electronic system, technical amendments to the final sentence of Rule G-38(e) and to Rule G-38(e)(iii) are made to conform language to usage throughout MSRB rules.

[2] Procedures for making submissions by paper are removed from Rules G-37(e)(i), G-37(e)(ii)(A)(2)(b) and G-38(e) and are consolidated in amended Rule G-37(e)(iv)(A).

[3] Amended Rule G-37(e)(iv)(B) provides that procedures for making submissions using the electronic system would be set forth in the MSRB’s Instructions for Form G-37/G-38 and Form G-37x to be published upon implementation of the system. These instructions will replace the current Instructions for Completing and Filing Form G-37/G-38.

[4] For example, a dealer could provide information regarding political contributions through direct data entry into the on-line form and could upload an internally-generated electronic file listing all municipal securities business engaged in during the calendar quarter.

[5] Of course, this electronic record must be maintained in a manner that complies with section (e) of Rule G-9, on preservation of records.

[6] Underlining indicates new language; strikethrough denotes deletions.